The continuing liberalisation of intra-Asian trade and services as well as enhanced financial sophistication fosters demand for complex financial services and facilitation of cross-border flows and investments.
It is against this backdrop that the development of regional financial centres enhances a fairer and more transparent market mechanism, creating a lower cost of capital as well as an improved allocation of capital, supporting the further growth of Asia.
The question is: How does an Asian IFC benefit from this newfound economic connectivity in an ever challenging and critical operating environment?
IFCs in Asia Pacific, such as Labuan International Business Financial Centre (Labuan IBFC), are critical to advancing economic integration of the region as it provides a neutral platform for even greater regionalisation while capturing of a larger portion of the fund flows, while ensuring all the new norms of transparency and substance are enshrined.
Ironically, in this day and age of globalisation in a borderless world, it has now become imperative to once again consider the geographical merits, accessibility and the level of real economy of any chosen IFC. No longer can the mantra “the further the better” ring true.
In fact, many Asian IFCs, including Labuan IBFC are already enjoying continued growth under this new reality.
IFCs: Reposition, rethink and re-evaluate their value propositions
Without a doubt to answer the unrelenting calls for transparency and substance, jurisdictions are repositioning, rethinking and re-evaluating their value propositions to enable them to stay relevant.
Having the necessary laws and regulations to be able to oversee, supervise and share information internationally, with evidence of substantive activities is a given. In addition IFCs would need to showcase their relevancy by identifying their long term niche, having the skilled talent to supply the needs of the industry, increasing visibility whilst at all times preserving their reputation and winning the public relations.
IFCs would also have to show their willingness to cooperate internationally and articulate their complementary nature vis-a-vis domestic centres even more effectively. So, it is definitely not a coincidence that centres have started measuring their value to the global economy or regional businesses via white papers and research reports.
Successfully articulating the value an IFC will be essential cornerstone to their acceptability, ironically less so to their utility, as there has always been a need for a point of intermediation in global trade, investments and business management, regardless whether they are offshore, mid shore or even onshore.
Indeed, it is a popular misconception that IFCs only exist on islands strewn across the globe. In fact, some IFCs are landlocked countries.
Labuan IBFC: The midshore offering
Labuan IBFC has always been somewhat of an enigma to those who are not familiar with it. It is part of Malaysia, one of the largest trading nations in the world, with a healthy Gross Domestic Product, essentially a booming East Asian economy.
Labuan IBFC is located on an island and the range of unique and bespoke structures on offer are cost efficient and it is regulated by a one-stop regulator, Labuan Financial Services Authority (Labuan FSA). So it ‘looks’ traditionally offshore, but it is not.
Welcome to the midshore concept, being borne from the natural juxtaposition Labuan IBFC finds itself in. The centre has been strategically designed to meet the demands of a future IFC, where cost efficiency and innovation are married with transparency, economic substance as well as stringent provisions on money laundering and terrorism financing.
The regulator, Labuan FSA, is a member of several international standard setting bodies; including the Asia/Pacific Group on Money Laundering (APG), providing unequivocal evidence of the jurisdiction’s commitment in countering any money laundering and terrorism financing activities on the jurisdiction.
It is worth noting that since its establishment 27 years ago, Labuan IBFC never allowed for cash transactions and bearer shares. You could say it was ahead of its time!
And as Labuan IBFC grows from strength to strength on the back of the unrelenting growth of the burgeoning Asian economies, surely the true challenge it faces is to ensure its competitive edge, so carefully crafted decades ago, continues to reign in today’s new normal operating landscape.